4 Good Habits To Improve Our Personal Finance In 2016

2016 is approaching. To improve our personal finance for the New Year, we have identified 4 good habits to develop in 2016. These habits are easily implementable and do not require and prior knowledge to successfully execute.

(1) Pay Annual Insurance Premiums Instead Of Monthly Premiums

Most insurance plans will allow you the option of either paying annual premiums or monthly premiums. By paying it via an annual premium, insurance companies would usually give a discount ranging from 2% to 4%.

If your monthly premiums are $80 per month, this will add up to $960 a year. With a 3% discount, you can save $28.80 per year. This may not sound like much, but if you have multiple policies to pay for your spouse, children and parents, this sum could easily add up to more than a hundred dollars worth of savings over a year.

(2) Use Credit Cards To Chalk Up Rebates And Earn Interest

The idea of being totally cash-free could really happen in our generation. Credit cards bring us so much closer to that cash-free world we dream of, provided we have good control and discipline while using it.

Credit cards basically provide us with a short-term loan to make a purchase without any immediate cash reduction in our bank accounts. What this means is that we can accumulate slightly more interest on the cash balance that we hold in our bank accounts for an extra month even though we have already technically spent the money.

Using a credit card to make a $5,000 purchase allows us to earn interest of about $9.40 (using OCBC 360, at 2.25% per annum) for that month. Again, $9.40 may not sound like a huge sum of money. However, if we were to think about how much we actually spent each year as a household, we would soon realize how much more interest we can earn just by using our credit cards instead of cash to pay for items we buy.

Rebates on credit cards also play a huge role in money saving. A $5,000 purchase might only cost you $4,850 once you factor in the 3% cash rebate. Again, you save $150 just by swiping your card instead of paying by cash.

In the long run, the interest you earn and the cash rebate you enjoy from using credit cards can add up to a significant sum of money each year. Finance savvy people can no longer ignore the monetary benefits one can obtained by using credit cards instead of cash.

(3) Setting Aside Savings First Before Expenses

Upon receiving our monthly paycheck, we tend to feel “richer”. This is more apparent for those of us who live by paycheck to paycheck. How saving usually works for these people would be to put whatever is left after a month of spontaneous expenditure and living expenses into a different bank account.

Unless we are earning a lot of money, the mentioned way of saving is not an efficient way to budget and save.

Instead, what we should do is to set financial goals that we hope to achieve (with a realistic targeted time) and to start setting aside money upon receiving our paycheck and work towards these financial goals. Deciding how much we can afford to spend for that month should only come after you have set aside for your financial goals.

Financial goals could include setting up an emergency fund, saving up for graduate school or putting a regular amount into investments periodically.

Budgeting

Target

Paycheck

2500

Emergency fund

-200

To Achieve in 12 months

Annual premiums

-80

To Achieve in 12 months

Year-end Trip

-200

To Achieve in 12 months

Further Education

-200

To Achieve in 48 months

Marriage

-500

To Achieve in 60 months

For parents

-250

Immediate

Investing

-300

Immediate

Phone bill

-50

Immediate

Ez-link

-100

Immediate

I can only spend this amount this month

620

The above budgeting plan is a simple one to understand for someone who is taking home $2,500 per month. Contrary to popular belief, working adults can actually spend lesser compared to their undergraduate days simply because they should have a lot less time to spend at places like cafes, bars and clubs due to work fatigue.

Therefore, being able to spend lesser than our undergraduate days is absolutely achievable. It depends mainly on the lifestyle we intend to lead.

(4) Start Investing

Investing seems to be daunting. Even finance graduates find it hard to get started. The reason for this is understandable. There are so many types of instruments out there for people to choose from and so many different advices being provided at the same time. Most people get confused over what they should choose.

We will help make things really simple. If your intention is to stay in Singapore till retirement, then the best place for a beginner like you would be the SDPR STI ETF. This ETF (short for exchange traded fund) consist of a basket of the most valued and highest transected companies that are traded in the Singapore Stock Exchange.

Examples of such companies are DBS Bank, SingTel and Keppel. It has a relatively diversified portfolio of industries such as banking, telecommunications, marine, real estate, transportation and others.

Most of us love to see our bank account grow, however the growth of money in our accounts gets eroded as the purchasing power is reduced due to inflation. Investing would be the best way to protect us from inflation.

Assuming that we invest $100 per month into the STI and reinvest the dividends, the portfolio would beat holding cash in deposits by about 18% since 2008. If we were to extrapolate this by the same magnitude, we would be able to live pretty comfortable lives after retirement.

Individually, these 4 habits may not appear like much.Collectively, they add up to a lot. The key is to start early.

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